Contracts are the foundation of every business relationship — they define commitments, risks, and deliverables. But the real challenge begins after the contract is created. Managing a contract from initiation to closure involves multiple stages, stakeholders, and compliance checks. This is where Contract Lifecycle Management (CLM) comes in.
Understanding the stages of CLM helps you ensure every agreement is properly drafted, executed, monitored, and renewed without missing critical obligations.
What Is Contract Lifecycle Management (CLM)?
Contract Lifecycle Management (CLM) refers to the systematic process of managing a contract from its creation, negotiation, and execution to its performance monitoring and renewal or termination.
It helps organisations streamline their legal, procurement, and sales processes while reducing risks and improving compliance. In simple terms, CLM ensures that every contract delivers maximum value throughout its life.
Why CLM Is Important for Legal Professionals and Businesses
- Ensures legal compliance and reduces risk exposure.
- Increases operational efficiency by automating workflows.
- Improves visibility and accountability across departments.
- Prevents missed renewals and financial losses.
- Enhances collaboration between legal, finance, and operations teams.
What Are the Main Stages of Contract Lifecycle Management?
The CLM process is generally divided into seven key stages, though the number may vary depending on an organisation’s structure. Let’s explore each stage in detail.
Contract Request and Initiation
This is where the lifecycle begins. A department, client, or partner identifies the need for a new contract.
At this stage, you define the contract objectives, stakeholders, timelines, and the documents required. A contract request form or internal workflow is often used to gather all relevant details.
Key activities include:
- Identifying business needs and scope.
- Defining contract type (e.g., vendor, service, employment).
- Gathering necessary approvals from relevant authorities.
- Assigning a contract owner or responsible person.
Proper initiation ensures clarity from the start and avoids future disputes.
Contract Authoring or Drafting
Once initiated, the next stage is contract drafting, where the terms, clauses, and obligations are written down.
This step requires collaboration between the legal team, business stakeholders, and sometimes external counsel. Modern organisations use contract templates or AI-assisted drafting tools to maintain consistency.
Key points during drafting:
- Ensure all essential clauses are included — such as confidentiality, indemnity, dispute resolution, and termination.
- Follow standard templates approved by the legal department.
- Use plain, precise language to avoid ambiguity.
- Maintain version control for multiple drafts.
Contract Negotiation
No two parties have identical expectations. During negotiation, both sides discuss and modify terms until they reach mutual agreement.
This stage can be time-consuming, especially for complex commercial or service contracts. Using negotiation tracking tools helps teams compare versions, track changes, and maintain transparency.
Effective negotiation practices:
- Prepare a negotiation checklist before discussions.
- Highlight non-negotiable terms (like liability or IP ownership).
- Keep records of all edits and approvals.
- Use redlining and commenting features for collaboration.
A clear and documented negotiation process reduces misunderstandings later.
Contract Approval
Once the draft is finalised, it must pass through internal approvals. This ensures that the contract aligns with the organisation’s legal, financial, and operational standards.
In traditional systems, this stage causes major delays due to manual routing. With automated approval workflows, CLM software sends contracts to relevant authorities for quick digital sign-offs.
What happens in the approval stage:
- Review by legal, finance, and management teams.
- Risk assessment and compliance checks.
- Sign-off from all authorised parties.
- Audit trail maintained for accountability.
Automation reduces approval time significantly and ensures compliance with company policies.
Contract Execution
After approvals, the contract is ready for execution — meaning signatures from all parties.
Earlier, physical signatures caused long delays and storage hassles. Today, e-signature platforms such as DocuSign or Adobe Sign make this step quick, secure, and legally valid in India under the Information Technology Act, 2000.
Tasks under execution:
- Ensure authorised signatories sign the document.
- Store the signed version in a secure digital repository.
- Share executed copies with all stakeholders.
- Update the CLM dashboard for tracking.
Proper execution ensures the contract becomes legally binding.
Contract Performance and Compliance Monitoring
Once active, a contract must be regularly tracked to ensure all parties meet their obligations.
Monitoring includes checking deliverables, payments, deadlines, and service levels. Any deviation or breach should be detected early to avoid disputes or penalties.
Best practices:
- Set automated reminders for key milestones.
- Review performance against the contract terms.
- Record compliance reports for audits.
- Escalate issues or delays immediately.
This stage ensures that the contract adds real value and prevents costly litigation.
Contract Renewal, Amendment, or Termination
As the contract nears expiry, decide whether to renew, renegotiate, or terminate it.
This stage helps organisations plan future business needs and avoid unintentional renewals. Renewal decisions should be based on performance data, business goals, and risk factors gathered during monitoring.
Steps involved:
- Analyse contract performance metrics.
- Notify stakeholders well before expiry.
- Renegotiate new terms, if needed.
- Update or archive the contract record post-closure.
A structured closure process ensures the continuity of successful relationships and prevents compliance lapses.
How CLM Software Simplifies These Stages
Modern CLM platforms integrate all these stages into a single automated workflow. They use AI, analytics, and cloud storage to simplify contract management.
Benefits of using a CLM tool:
- Centralised contract repository.
- Faster drafting through AI templates.
- Digital signatures and automated reminders.
- Real-time tracking and analytics.
- Enhanced compliance and risk management.
Popular CLM solutions in India include Icertis, ContractWorks, and Zoho Contracts, which support both SMEs and large enterprises.
What Are the Common Challenges in Contract Lifecycle Management?
Even with technology, organisations face challenges such as:
- Lack of standardised templates.
- Manual approval delays.
- Poor version control.
- Missed renewal dates.
- Limited visibility across departments.
By adopting a well-defined CLM process and leveraging automation, you can overcome these bottlenecks and ensure better governance.
How Can Legal Teams Improve Their CLM Processes?
Some actionable steps include:
- Introduce AI-assisted drafting to reduce manual errors.
- Set up clear approval hierarchies.
- Maintain an accessible central repository.
- Conduct regular compliance audits.
- Train teams on contract management tools.
When your legal, finance, and operations teams collaborate effectively, contract management turns from a liability into a strategic advantage.
Master Contract Lifecycle Management with Expert Guidance
Contract management is a continuous process of collaboration, compliance, and performance tracking. When you master these stages, you not only protect your organisation from legal risks but also enhance business value.
Want to learn how to manage contracts efficiently using practical tools and templates?
Check out the Contract Lifecycle Management Course on LawMento. Use code “SAVE10” for special discounts.
